IPO) market is red hot, with five issues worth ₹7,400 crore opening for subscription this week, but enthusiasm is muted among finance companies that have historically lent to bidders in such share sales.
With stringent rules on IPO financing put in place by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi), these lenders are keeping market borrowings at a bare minimum.
Subscriptions at a High
In November so far, non-banking financial companies (NBFCs) have raised Rs 3,500 crore through commercial papers (CP), bringing the total borrowing through the route for the year to Rs 20,100 crore, according to Icra.
In 2022, NBFCs raised Rs 45,740 crore through the instrument.
In 2021, they raised a record Rs 7.1 lakh crore, and in 2020, Rs 2.38 lakh crore through the short-term commercial paper, it said. The borrowings in 2020 and 2021 were made to satiate the demand among rich investors, who borrowed and placed large bids in IPOs for listing gains.
This resulted in many IPOs in this period seeing astronomically high subscriptions.
Concerned over the IPO frenzy fuelled by short-term borrowings, RBI imposed a ceiling of Rs 1 crore on the amount that NBFCs can lend per borrower per issue, effective April 1, 2022.
Change in Category
The results have been visible. For instance, one of the most successful IPOs in recent times — the Rs 5,352-crore IPO of FSN E-Commerce Ventures, parent of Nykaa — saw bids worth Rs 89,928 crore in 2021 in its high net worth individual (HNI) category alone.
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In 2022, the highest bid for HNIs was Rs 30,402 crore for Adani Wilmar's Rs 3,600-crore IPO. The next year, the top bid from HNIs declined to Rs 7,967 crore for SBFC Finance's Rs 1,025-crore public offer.